TradingMarkets Monday Stock Movers
With the markets opening lower, there are a number of weak stocks that had been drifting higher in recent days, becoming more and more overbought in the process.
When markets are on the retreat, we tend to be more interested in looking for strong stocks pulling back. But there are another set of stocks that short term traders should be paying attention to as well. These stocks are the weaker stocks, stocks trading below their 200-day moving averages, that have been moving up in recent days.
Sometimes this movement is under the radar, and other times it is the result of hype as traders stuck in losing positions try to encourage other traders to climb in and – effectively – bail them out. But whatever the reason, when stocks that were initially in bad shape to begin with start moving higher, traders looking to bet against stocks know that these are the ones to count out.
Let’s take a look at five such stocks. All five, as part of our regular Monday Market Movers column, have gained 10% or more in the past few days. These stocks are also all trading below their 200-day moving averages and have Short Term PowerRatings of 1 – our lowest PowerRating. This makes these stocks ideal candidates for reversal, as they become more overbought and less likely to continue rising.
Avanex Corporation
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AVNX |
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PowerRating) Short Term PowerRating 1. RSI(2): 97.75
Shares of Avanex have had low Short Term PowerRatings for most of the past several weeks – though those PowerRatings had managed to remain above our lowest level up until the past few days. The AVNX chart shows one reason why it is often good to wait for stocks to have their Short Term PowerRatings downgraded to the lowest possible levels before treating those stocks as among the best short selling candidates.
Chordiant Software Inc.
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CHRD |
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PowerRating) Short Term PowerRating 1. RSI(2): 98.52
Like Avanex, Chordiant has become a 1-rated stock in the past few days – after spending much of the past several weeks oscillating between the lowest average ratings and the highest low ratings. As of this writing, CHRD is trading approximately 2.5 points below its 200-day moving average.
Progenics Pharmaceuticals Inc.
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PGNX |
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PowerRating) Short Term PowerRating 1. RSI(2): 96.16
I mentioned that it is often best when looking to bet against stocks for traders to wait for the PowerRatings of those stocks to drop all the way to 1. The chart of Progenics Pharmaceuticals provides a good visual example of why this is so. Note the last time that PGNX’s PowerRating dropped to 1 in late April. The day the stock’s Short Term PowerRating dropped to 1, PGNX closed at $14.02. Four days later, the stock was closing below its 5-day moving average at $13.37 – a gain of more than 4%.
Secure Computing Corporation
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SCUR |
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PowerRating) Short Term PowerRating 1. RSI(2): 93.92
The modest bounce in SCUR has resulted in a significantly overbought market in a relatively short period of time. As few as five or six days ago, the stock had a Short Term PowerRating of 8 – a high PowerRating to be sure, but mitigated by the fact that the stock is trading below its 200-day moving average.
Western Refining Inc.
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WNR |
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PowerRating) Short Term PowerRating 1. RSI(2): 99.57
Western Refining Inc. in many ways embodies many of the traits we’ve seen in some of the previous stocks. Not only has the stock recently had its Short Term PowerRating downgraded to a 1 in recent days, but the stock has also only recently displayed a high Short Term PowerRating of 8. Again, however, there is the caveat that this high Short Term PowerRating was earned while the stock was trading below its 200-day moving average.
Our research into stocks that have been higher by 10% or more in the past five days – and are trading below their 200-day moving averages – indicates that these stocks tend to underperform the average stock in one-day, two-day and one-week timeframes. As such, these names can be among the best candidates for traders looking to take bets against stocks.
David Penn is Senior Editor of TradingMarkets.com.